Three Way News

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Tuesday, July 26, 2005

Back to Galveston

Political Animal's guest blogger Michael Hiltzik is pretty spot-on in his analysis of the Galveston retirement plan. Everything is spot-on, at least, except for the first 5 words: "The Next Social Security Meme". As Hiltzik himself explains, Bush has already been pimping Galveston, as have conservative radio hosts.

But because Three Way News is your source for everything (really), you've known about the huge flaws in the Galveston plan since Gil Gutknecht starting pushing them in February. Pete Sessions was pushing the scheme in March. Radio host Herman Cain quickly followed.

There are two things to remember about the Galveston Plan. First, it costs more. A lot more: 13.9% of total income rather than 12.4% of income up to $90,000. Second, the Bush plan has nothing to do with the Galveston model:

Under the Alternate Plan, workers' money is not invested directly in the stock market, but solely in annuities, earning an interest rate which adjusts each quarter but never drops below a minimum of 4 percent, a rate that's guaranteed by the insurance companies holding the annuities.

In Galveston, the plan takes your money and buys an annuity which promises a minimum 4% return. The annuity then invests the money as it sees fit. The Bush plan is for direct private investment: no middleman, no guaranteed rate of return.